Discount burgers: Do coupons help fast-food chains?
In their rush to satisfy profit-hungry stockholders, US restaurant chains are finding themselves in, well, a pickle. With the national economy only slowly beginning to show signs of emerging from deep recession and with unemployment hovering between 10 and 11 percent, such chains are resorting more and more to special promotions to lure customer traffic and boost sales. The practice, long used to promote bath soap and toothpaste, is known as ''couponing.''
Walk into a fast-food or family-style, sit-down chain restaurant these days and you are likely to find any of a variety of deals to tempt your appetite as well as your urge to spend. Some offer a second sandwich at a reduced price, or even free, when the first one is purchased at full price. At one time or another last year, a coupon holder could have received nearly every item on the menu at McDonald's outlets free, including a breakfast entree of scrambled eggs, sausage , hash-brown potatoes, and English muffin.
Other chains offer discounts on beverages, desserts, or take-home cartons of ice cream in exchange for a full-price meal. Still others feature specially priced meals on traditional low-volume days - Monday through Thursday.
Multiply these promotions by the tens of thousands of chain-restaurant outlets across the country and it's not hard to see the effect: increased traffic perhaps, but limited real growth in sales.
No one knows exactly how much couponing is costing the industry, but the amount is sizable - and worrisome. Moreover, it may be years more before some chains feel able to abandon the practice, says analyst William Hale of Technomics Consultants, a Chicago-based marketing and consulting firm,.
Even then, he adds, ''I don't think couponing is ever going to go away completely.''
Food costs account for 40 percent of the average chain's sales dollar, with labor and other expenses making up most of the rest. If a chain offers a 30 percent discount, it can still make money, Mr. Hale claims, ''but you're now starting to give away the margin.''
Paul McDonald, vice-president of corporate development for the Friendly Ice Cream Corporation, which operates restaurants in 16 states, says: ''The climate is such that the percentage of transactions that are done 'on deal' is at an all-time high. The danger today that everybody in the industry talks about is that the consumer gets in his mind certain pricing expectations that are hard to eradicate.''
Mr. McDonald compares the phenomenon to that of the home handyman so accustomed to seeing power saws advertised at discount prices in Sears catalogs that he determines never to buy one at the full price.
''The (chain restaurant) consumer has lost brand loyalty and will go wherever the best deal leads,'' McDonald claims. ''And it's awfully difficult to stand tall and say you're not going to do it (couponing) when every other restaurant on the block is.''
Indeed, some analysts say fast-food operators have become as much a commodity as the beef and chicken they serve. The chains, in an intense battle for business, continue to open new outlets to satisfy stockholders' demands for short-term profits. But they also saturate markets over the long term.
The top 100 chains account for an estimated 40 to 45 percent of all eating-away-from-home sales. Meanwhile, however, as the recession lengthens, discretionary spending continues to contract, so the chains are battling for shares of a shrinking pie.
Some operators distinguish between couponing simply to boost traffic and doing it to introduce a new product - say, a chicken fillet sandwich. The latter practice, they say, is an intelligent marketing tool that may never disappear.
Couponing began in the late 1970s and has grown because most chains were founded by entrepreneurs who knew how to prepare and serve food but not promote their wares, especially in a declining economy. For that expertise, they turned to people skilled in marketing but whose experience was in packaged products - so much so that there is a sizable fraternity of former packaging specialists in the restaurant industry.